Salaries Payable

Salaries payable is a liability account that records the amount of salaries employees have earned for work already performed but that the employer has not yet paid at the end of an accounting period. It is reported among current liabilities on the balance sheet, because the amount will normally be paid on the next payday, within days or weeks.

The account exists because of the accrual basis of accounting. Employees earn salary every working day, but they are paid on a fixed schedule, such as every two weeks or at the end of the month. When the books are closed on a date that falls between paydays, the business must record the cost of the days already worked, along with the obligation to pay for them. The same balance is sometimes called accrued salaries or, together with wages, accrued payroll.

Salaries payable is created by an adjusting entry at the end of a period. The entry debits salaries expense, so the income statement includes the full cost of staff for the period, and credits salaries payable. When the next payroll is processed, the liability is cleared: salaries payable is debited for the accrued portion, salaries expense is debited for any days worked in the new period, and cash and the various withholding liabilities are credited. Some businesses instead use a reversing entry on the first day of the new period so the payroll can be recorded in the usual way.

Strictly, the accrued amount is the gross salary. When the payroll is actually run, part of that amount is split off into separate liabilities for employee income tax withholdings and FICA, which are reported as payroll taxes payable until remitted. The employer's own payroll taxes on accrued salaries may also be accrued at period end.

A firm's salaried staff earn a total of $42,000 per two-week pay period of ten working days, paid on Fridays. Its financial year ends on Tuesday, 30 June, and the next payday is Friday, 10 July. By 30 June, staff have worked seven of the ten days in the current pay period. The amount earned but unpaid is:

Here $\text{Salary per pay period}$ is the gross payroll for one cycle, $\text{Working days per pay period}$ is the number of days that payroll covers and $\text{Days worked but unpaid}$ is the number of those days that fall before the period end. The result is $42,000 divided by 10, times 7, or $29,400. On 30 June the firm debits salaries expense $29,400 and credits salaries payable $29,400. On 10 July it debits salaries payable $29,400 and salaries expense $12,600 for the three July days, and credits cash and withholding liabilities for the total of $42,000.

• Accrued vacation pay and other compensated absences are separate liabilities for time off earned but not yet taken.
• Bonuses and commissions earned but unpaid are usually recorded in their own payable accounts.
• Wages payable is the equivalent account for hourly wages; many businesses combine the two.
• Amounts withheld from salaries belong in withholding and payroll tax accounts, not in salaries payable.

The most common errors are forgetting the accrual altogether, which understates both expenses and liabilities, and recording it twice by also expensing the full next payroll without clearing the liability. Both distort profit between periods. Auditors test the balance by recalculating it from payroll records and checking payments made just after the period end. Because salaries payable is usually settled within weeks, it has a direct effect on short-term liquidity measures, and a growing balance relative to payroll can signal that a business is struggling to pay staff on time. It is closely related to the broader category of accrued expenses payable.